TDS Statement Processing and Bar Against Direct Demand: Sections 399 and 401 of the Income Tax Act 2025

Every TDS or TCS statement you file is processed by the tax department. Under section 399 of the Income Tax Act 2025, the department corrects arithmetical errors and apparent incorrect claims, computes interest and fee, sets off what you already paid, and sends you an intimation showing the amount payable or refundable. The intimation must go out within one year from the end of the tax year in which the statement is filed. Separately, section 401 says that once tax has been deducted at source from an income, the assessee (the payee) cannot be asked to pay that same tax again.

This guide explains both provisions, with worked examples for the tax year 2026-27. The text is taken from the Act as amended by the Finance Act, 2026, and rule 199 of the Income-tax Rules, 2026 where it mentions these sections.

What is processing of a TDS or TCS statement?

Processing is the department's automated check of a statement of tax deducted at source (TDS) or tax collected at source (TCS), including a correction statement. Section 399(1) lists what happens, in this order:

1. Adjustments. The amount deductible or collectible is computed after fixing (i) any arithmetical error in the statement, or (ii) an incorrect claim that is apparent from information in the statement itself (section 399(1)(a)).
2. Interest. Interest, if any, is computed on the deductible or collectible amounts as they appear in the statement (section 399(1)(b)).
3. Fee. Fee, if any, is computed under section 427(1) and (2) (section 399(1)(c)).
4. Set-off. The amount payable by, or refundable to, the deductor or collector is worked out after adjusting the interest and fee against sums already paid under section 397(3), section 398 or section 427(1) and (2), and any amount paid otherwise as tax, interest or fee (section 399(1)(d)).
5. Intimation. An intimation is prepared or generated and sent to the deductor or collector with the amount payable or refundable (section 399(1)(e)).
6. Refund. Any refund due is granted to the deductor or collector (section 399(1)(f)).

What is the time limit for the intimation?

Section 399(2) says the intimation must be sent within one year from the end of the tax year in which the statement is filed. The clock runs from the end of the tax year, not from the filing date.

Statement filed on	Tax year of filing	Intimation due by
31 July 2026	2026-27 (ends 31 March 2027)	31 March 2028
15 February 2027	2026-27 (ends 31 March 2027)	31 March 2028
10 May 2027	2027-28 (ends 31 March 2028)	31 March 2029

Section 399(3) lets the Board make a scheme for centralised processing of statements.

How is the amount payable or refundable worked out? Two examples

Example 1: amount payable. Assumptions for tax year 2026-27: a company deducted Rs 50,000 of tax. Rs 50,000 was deductible on 7 June 2026 but was actually deducted on 20 July 2026 and deposited on 5 September 2026. Interest under section 398(3)(a) is simple interest at 1% per month or part of a month from the deductible date to the deduction date, and 1.5% per month or part of a month from the deduction date to the payment date. The statement was filed 15 days late, so fee under section 427(1) applies at Rs 200 a day.

Step	Working	Amount (Rs)
Interest, deductible to deduction	7 Jun to 20 Jul = 2 months (1 full, 1 part); 1% x 2 x 50,000	1,000
Interest, deduction to payment	20 Jul to 5 Sep = 2 months (1 full, 1 part); 1.5% x 2 x 50,000	1,500
Fee, late statement	15 days x Rs 200 (below the Rs 50,000 cap)	3,000
Total computed	1,000 + 1,500 + 3,000	5,500
Less: already paid as interest and fee	Paid before filing the statement	(4,000)
Payable as per intimation	5,500 - 4,000	1,500

Interest has to be paid before the statement is furnished (section 398(3)(b)), and so does the fee (section 427(2)(b)). That is why such payments usually show up as "already paid" at processing.

Example 2: refund. Same facts, but the deductor had paid Rs 6,000 earlier, including a duplicate payment. Computed amount is Rs 5,500, paid is Rs 6,000. The difference of Rs 500 is the refund due, and section 399(1)(f) says it shall be granted.

What can the department correct during processing?

Only two types of adjustment are listed in section 399(1)(a): an arithmetical error and an incorrect claim apparent from information in the statement. Processing works on the statement's own data. A deductor who disagrees with an adjustment is not left without a remedy: rule 199(a)(ii) treats an intimation under section 399(1) as a "specified order" for dispute resolution under section 379, where the deductor or collector objects to the adjustments made.

What does section 401 say about direct demand on the assessee?

Section 401 is one sentence long. Where tax is deductible at source under the Chapter on deduction and collection, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.

In plain terms, if a customer has already deducted tax from what they owed you, the department cannot also demand that same tax from you directly. The word "extent" matters. If only part was deducted, the bar covers only that part.

What happens if the payer deducted but never deposited the tax?

Section 398(1) puts the burden on the person who deducts: if tax is deducted and not paid to the Government, that person is deemed an assessee in default for that tax. Section 401 protects the payee from a direct demand for the amount that was deducted. Whether and how the payee gets credit is a procedural matter beyond what these two sections state, so confirm it before relying on it.

Is TDS treated as the payee's own tax payment?

Yes. Section 390(5) says tax deducted or collected at source and paid to the Central Government is treated as payment of tax on behalf of the person from whose income it was deducted (or from whom it was collected). Section 390(6) lets the Board make rules on giving that credit and on the tax year for which it is given. So section 401 (no second demand) and section 390(5) (deducted tax counts as the payee's payment) work together. Check the credit rules for the exact procedure; this article does not cover them.

Real-life examples

Ravi, a consultant. A client pays Ravi's invoice for tax year 2026-27 after deducting Rs 20,000 of TDS. Later the department finds the client deposited the tax late. Because the tax was deducted from Ravi's income, section 401 means Ravi cannot be called upon to pay that Rs 20,000 again. The late deposit is the client's issue, including interest under section 398(3).

Meena, a shop owner and part deduction. A buyer deducts Rs 5,000 from a payment where Rs 8,000 was deductible. Section 401 bars a direct demand from Meena only up to the Rs 5,000 actually deducted. The shortfall of Rs 3,000 stays with the deductor as a failure to deduct under section 398, unless the section 398(2) relief applies (the payee filed the return, included the income and paid the tax, and an accountant's certificate is furnished).

Quick reference

Point	Rule	Where
What is processed	TDS and TCS statements, including correction statements	399(1)
Adjustments allowed	Arithmetical error; incorrect claim apparent from the statement	399(1)(a)
Intimation deadline	1 year from end of tax year of filing	399(2)
Refund	Granted to the deductor or collector	399(1)(f)
Late-statement fee	Rs 200 a day, capped at the tax deductible or collectible	427(1), (2)
Interest on late deduction	1% per month or part	398(3)(a)(i)
Interest on late deposit	1.5% per month or part	398(3)(a)(ii)
Bar on direct demand	To the extent tax was deducted	401

What are the common mistakes?

• Filing without paying interest and fee first. Sections 398(3)(b) and 427(2)(b) require payment before the statement is furnished.
• Treating the intimation as final. If you object to the adjustments, rule 199(a)(ii) recognises the intimation as a specified order for dispute resolution.
• Counting the one year from the filing date. The period runs from the end of the tax year in which you filed.
• Ignoring a refund. A refund due after set-off is granted to the deductor; check the intimation for it.
• Reading section 401 as covering tax that was never deducted. The bar applies only to the extent tax was deducted.

Where this is in the Act

• Section 399: processing, intimation within one year, centralised scheme
• Section 401: bar against direct demand on assessee
• Section 397(3): deposit of tax and delivery of statements
• Section 398: assessee in default, interest at 1% and 1.5%
• Section 427(1) and (2): fee of Rs 200 a day for late statements
• Rule 199(a)(ii): intimation under section 399(1) as a specified order for section 379

Related reading: TDS compliance, deposit and statements and consequences of TDS failure. For rent specifically, see TDS on rent.

How can a CA firm keep track of intimations?

A CA firm filing statements for many deductors needs to know which statements have been processed, which intimations are open, and which dates are coming up. Finexo's practice management software tracks these deadlines across your client book. It does not compute TDS or file statements for you.

This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026. It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.